Cobalt, a crucial element for manufacturing, plays an essential role in the production of electric vehicle (EV) batteries, industrial equipment, and paints. Typically sourced as a byproduct of copper or nickel refining, cobalt’s significance has surged alongside the rise in demand for lithium-ion batteries, which power not just EVs but a vast array of electronic devices. However, the commodity has faced a volatile journey, with prices soaring during the pandemic only to plummet dramatically in recent years. For traders and investors, the question now is whether cobalt still represents a strategic opportunity in the broader context of energy transition and battery technology.
Market Dynamics: From Shortage to Surplus
During the COVID-19 pandemic, cobalt prices rose sharply due to escalating demand for batteries in consumer electronics and electric vehicles. Mining companies around the world ramped up production in response, leading to an unexpected surplus in the cobalt market. However, several factors subsequently drove demand down. The development of low-cobalt or cobalt-free batteries, growing concerns over the environmental and human rights abuses in the Democratic Republic of Congo (DRC) — where over 70% of the world’s cobalt was mined in 2022 — and increased recycling efforts have all contributed to cobalt’s decline. As a result, cobalt’s spot price has fallen by over 60% from its peak two years ago, as of mid-August 2024.
Investment Outlook: Still Relevant or Past Its Prime?
Despite this recent downturn, cobalt continues to be a staple in most EV batteries, which still accounts for a significant portion of its demand. Investors who believe in the continued relevance of cobalt in battery technology and renewable energy may still find value in cobalt-related stocks. However, it is crucial to recognize the volatility of the cobalt market, especially since cobalt is predominantly a byproduct of other metals like copper and nickel. Pure-play cobalt stocks are rare, and many aren’t even listed on U.S. exchanges, making direct investment more challenging.
For those looking to hedge their bets, a diversified approach might include shares in international mining ETFs like the iShares MSCI Global Metals & Mining Producers ETF (PICK) or the Amplify Lithium & Battery Technology ETF (BATT). These funds invest in companies heavily involved in battery technology and metals production, offering exposure to the broader market beyond just cobalt.
Top Cobalt Stocks to Watch in 2024
Several major players are involved in cobalt production, either directly or indirectly. Here are seven stocks worth watching:
- BHP Group (NYSE: BHP)
- Market Cap: $135 billion
- Overview: One of the largest mining companies globally, BHP Group is a significant player in base materials and energy production, including copper and nickel — both of which yield cobalt as a byproduct. The company’s strong profit margins and innovative partnerships, like its venture with AI startup KoBold Metals, position it well for continued growth in battery materials.
- Vale S.A. (NYSE: VALE)
- Market Cap: $43.9 billion
- Overview: A Brazilian mining giant, Vale is a top producer of iron, nickel, and copper, with ancillary cobalt production. While cobalt is not a major revenue driver for Vale, the company benefits from its scale and diversification, maintaining solid operating margins across its portfolio.
- Glencore (OTC: GLNCY)
- Market Cap: $62.7 billion
- Overview: As one of the world’s largest cobalt producers, primarily through its copper mines in the DRC, Glencore remains a major player in the cobalt space. However, it is not listed on U.S. exchanges, and its profit margins have not matched those of some competitors.
- Freeport-McMoRan (NYSE: FCX)
- Market Cap: $59.7 billion
- Overview: Based in Arizona, Freeport-McMoRan is a leading global producer of copper and derives cobalt as a byproduct. The company’s strategic divestments in cobalt refining while retaining a stake in the business highlights its adaptable approach to the commodity markets.
- Wheaton Precious Metals (NYSE: WPM)
- Market Cap: $26.2 billion
- Overview: Unlike traditional miners, Wheaton Precious Metals operates as a streaming company, pre-purchasing a portion of miners’ output at a discounted price. Its exposure to cobalt adds a unique angle to its primarily precious metals-focused portfolio, offering diversification and steady dividends.
- CMOC Group Ltd. (OTC: CMCLF)
- Market Cap: $20.6 billion
- Overview: Based in China, the world’s largest EV market, CMOC Group Ltd. is the second-largest cobalt producer globally, deriving the metal from its copper mining operations in the DRC. While not listed on U.S. exchanges, it features in several international ETFs, providing alternative investment routes.
- Cobalt Blue Holdings (OTC: CBBH.F)
- Market Cap: $22.3 million
- Overview: A high-risk, high-reward penny stock, Cobalt Blue Holdings is currently in the development stage, focusing on the Broken Hill Cobalt Project in Australia. While the project’s future is uncertain due to market oversupply, it could emerge as a key player if successful.
Investment Strategy: Navigating the Cobalt Market
Given the volatility inherent in commodity markets, investing in cobalt stocks requires a careful strategy. Focus on companies with diversified portfolios, stable profit margins, and exposure to multiple growth areas within the mining sector. ETFs that cover a broader range of battery materials might offer a more balanced approach for those seeking to mitigate risk while still capitalizing on the long-term growth prospects of the energy transition.
Key Takeaways for Investors
- Volatility Remains High: Cobalt prices have been highly volatile, and the trend is likely to continue amid changing supply-demand dynamics and geopolitical concerns.
- Diversification Is Crucial: Due to the lack of pure-play cobalt stocks, diversifying investments across related sectors or through ETFs could provide better risk management.
- Long-Term Potential in EVs and Renewables: Cobalt’s role in EV batteries and renewable energy suggests it could still be an attractive bet for long-term investors, despite recent setbacks.
Conclusion
Cobalt may not currently be the darling of the commodities market, but its continued relevance in battery technology makes it a critical component to watch. Investors should weigh the risks and opportunities carefully, keeping an eye on emerging technologies and geopolitical developments that could further impact the market.
